Explanation:
According to standard regulatory guidelines on Model Risk Management (such as the US Federal Reserve's SR 11-7), a model is formally defined as "a quantitative method, system, or approach that applies statistical, economic, financial, or mathematical theories, techniques, and assumptions to process input data into quantitative estimates." While expert judgment and qualitative elements are often incorporated as overlays during the modeling process, the fundamental definition of a model centers entirely on its quantitative approach to generating results.
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Q.71 A risk manager at a bank is presenting to the board of directors about model risk management. He starts his presentation by defining a model. Which one of the following is the correct definition of a model in the context of risk management in the modern day today?
A
A tool used for forecasting based on complex statistical techniques
B
A tool used for forecasting based on qualitative techniques
C
A tool that applies quantitative approaches to forecast results
D
A tool used for forecasting based on both quantitative and qualitative methods
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